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UBS Study Cantonal Competitiveness Indicator 2016: Growth potential pooled in the centers

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Zug is the most competitive canton in Switzerland, followed by Zurich and Basel-City. The ability to innovate increases long-term growth potential. Swiss economic centers, however, have only partly translated their innovative strength into productivity growth. The best way to promote innovation is through tax incentives and educational policy.

Zurich, 31 March 2016 – In its Cantonal Competitiveness Indicator (KWI), UBS Chief Investment Office WM publishes a condensed analysis of more than 50 individual indicators that shed light on the competitiveness of the Swiss cantons. Zug and Zurich have the best long-term growth potential according to this year's KWI. Basel-City, Aargau and Vaud, and the central Swiss cantons of Lucerne, Nidwalden and Schwyz are all more competitive than average. They are followed by those cantons exhibiting solid, mid-range competitiveness, from Basel-Country and Geneva to Solothurn and Bern. The mountain cantons of Glarus, Uri, Graubünden and Valais, as well as the canton of Jura, fall into the group with low relative competitiveness.

Innovation as the key to growth

According to the KWI, Basel, Vaud and Neuchâtel are the most innovative cantons in Switzerland. The ability to innovate usually leads to higher long-term productivity. But the economic growth of Swiss cantons between 2003 and 2013, particularly in the university cantons of Geneva, Zurich, Ticino and Vaud, stemmed largely from higher employment. Industrial and minor cantons, on the other hand, managed to boost their productivity considerably thanks to international competitive pressure and structural change. So above-average innovation raised productivity only partially and only in some sectors noticeably.

Better conditions instead of activism

How cantons could direct their regional innovation policy to promote productivity over the long term is the focus of this year's study. Cantons have adopted numerous policy measures (including start-up centers, cluster initiatives and financial assistance). As innovation processes are complex and long term in nature, it is almost impossible to measure the benefits of instruments and difficult to weigh them against their costs. Market-oriented steps such as providing advice to young entrepreneurs, refining spatial planning, and marketing and representing the interests of the local economy to the outside world may, however, provide support at minimal expense. The most-promising factor in the long term is by enhancing tax incentives and involving the private sector more extensively in education.

 

Cantonal Competitiveness Indicator (KWI) 2016

Source: UBS

Methodology

The KWI is based on the comparative analysis of eight pillars that include over 50 variables. The variables are weighted, aggregated and scaled so that each canton gets a score between 0 and 100 for each pillar. To calculate the KWI, the average score is calcu­lated from the eight pillars for each canton and scaled so that the highest-scoring canton has an average of 100 points.

The higher a canton's KWI value, the more competitive it is relative to the others.

Interpretation of the KWI

UBS's Cantonal Competitiveness Indicator compares the economic competitiveness of the cantons. Competitiveness describes a canton's potential to improve its long-term economic performance. The KWI shows the relative competitiveness in the form of a ranking: the higher the KWI score of a canton, the more competitive it is relative to the others. A low KWI score means that a canton has below-average growth opportunities compared to the other cantons, not that it necessarily has low absolute growth potential. Since many highly regarded studies rank Switzerland among the most competitive countries in the world, even low KWI cantons are still internationally competitive.

The competitiveness calculated at the cantonal level also conceals the various regional differences within the cantons. In the large and the densely populated cantons in particular, closer consideration of the individual regions within them provides a more detailed picture of regional growth potential. The map on page 3 shows a regionalized view of KWI 2016 featuring the 106 economic regions defined by the Federal Office of Statistics.

Big cantons – big differences

Indicative regionalization of KWI 2016

Source: UBS

Centers in mountain cantons considerably more competitive

The competitiveness of the large mountain cantons of Graubünden, Valais or Ticino is of course limited by the poor relative accessibility of their side valleys. But some economic regions within these cantons are more competitive. For example, Lower Valais with its proximity to the Lemanic Arc and its young population has greater potential than Upper Valais. The Rhine valley at Chur clearly stands out as an industrial location compared with the remaining, predominantly tourism-focused regions of Graubünden. In Ticino, Lugano takes the lead as a center of financial and service-related activity.

Even so, the economic centers of these cantons are to be found at best in the mid-range sector of Switzerland's 106 economic regions. But population migration from structurally weak areas to the more competitive centers of each canton helps to consolidate the limited economic potential and enhance the competitiveness of the mountain cantons.

Bern and Vaud display the biggest intra-cantonal differences 

In the canton housing Switzerland's capital, the greatest economic potential by far is to be found in the area around Bern. It stands out from the other parts of the canton primarily as a result of the high educational attainment of the local population and its easier accessibility. Vaud includes the region with the lowest profitability in French-speaking Switzerland, the mountain region of Pays d’Enhaut, as well as the regions with the highest competitiveness, Lausanne and Nyon. The latter have better transport links than the other regions of Vaud and they are the innovation centers of the canton.

The eight pillars of competitiveness

At the heart of the KWI is an eight-dimensional analysis of a canton's strengths and weaknesses. This multidimensional examination of each canton's economy provides a tool for helping regional authorities make strategic decisions and highlights areas where action is needed. Businesses and investors can use this information to choose where to locate, and it helps cantons position themselves to face impending challenges. The profiles of the two densely populated cantons of Zurich and Bern serve as examples:

Source: UBS

The profiles of all cantons can be viewed in the Cantonal Competitiveness Indicator report at the following link: www.ubs.com/kantonalerwettbewerbsindikator-en.

UBS Switzerland AG

Media contact

Elias Hafner, economist, CIO Swiss & Global Real Estate, main person responsible for the KWI
Tel. +41-44-234 48 03, elias.hafner@ubs.com

Dr. Matthias Holzhey, economist, CIO Swiss & Global Real Estate
Tel. +41-44-234 71 25, matthias.holzhey@ubs.com

Claudio Saputelli, economist, Head CIO Swiss & Global Real Estate
Tel. +41-44-234 39 08, claudio.saputelli@ubs.com

The Cantonal Competitive Indicator report can be viewed online at the following link: www.ubs.com/kantonalerwettbewerbsindikator-en.


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